Position sizing is arguably the most important aspect of trading. It determines how many lots you should trade based on your account size, risk tolerance, and the distance to your stop loss.

The standard rule among professional traders is to risk no more than 1-2% of your account balance on any single trade. This ensures that even a string of losses won't significantly damage your trading capital.

The position size formula is: Position Size = (Account Balance × Risk %) / (Stop Loss Pips × Pip Value). This gives you the number of lots to trade that aligns with your risk parameters.

For example, with a $10,000 account risking 2% with a 50-pip stop loss and $10 pip value: Position = ($10,000 × 0.02) / (50 × $10) = 0.40 lots.

Consistent position sizing separates profitable traders from those who blow their accounts. Never risk more than your predetermined amount, regardless of how confident you feel about a trade setup.